Judge sets Puerto Rico’s bond litigation path

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Puerto Rico bankruptcy Judge Laura Taylor Swain on Wednesday set a schedule for restarting litigation over $22 billion of bonds that are part of the territory's historic debt restructuring.

At a Title III omnibus hearing in San Juan, Swain approved the recommendation by Chief Mediator Barbara Houser to restart litigation in January for commonwealth general obligation, Highways and Transportation Authority, and Public Building Authority bonds. The Puerto Rico Oversight Board and other stakeholders have been in confidential mediation since late July. Swain had frozen litigation over such issues as the bonds' validity and secured status, the treatment of bonds under the U.S. Constitution, and whether the elected local government's assent to any agreement is legally required.

With little progress reported in resolving those issues, Houser in late November filed an interim report requesting that Swain restart litigation.

Swain approved Houser’s recommendations with some changes.

Concerning Houser’s proposed order for general obligation and Public Building Authority bonds, Swain said she wanted better notice for bondholders. She directed adding holders of the 2012 and 2014 bonds — which the Oversight Board is seeking to invalidate — to the proceedings' notification. The board needs to post this bondholder notification to its web site or to the Prime Clerk site for the bankruptcy.

Swain also said the board should consider setting up a section of its site to display all legal notifications.

A proposed order addressing the bonds of the Government Development Bank Debt Recovery Authority would be reworked so that the litigation schedule would line up to a hearing at the April 22 Title III omnibus hearing, Swain said.

Swain specified other changes for the Houser proposal. Swain indicated that she might make further changes at the January omnibus hearing, scheduled for Jan. 29.

At the start of Wednesday’s hearing board attorney Martin Bienenstock said that Puerto Rico had received some “serious bids” for the transmission and distribution systems of the Puerto Rico Electric Power Authority. He said the board looks forward to doing the “transaction.”

Also on Wednesday, Swain agreed to lift the stay on the Employees Retirement System solely to allow UBS Financial Services to file a countersuit against ERS in a non-federal Puerto Rico court.

ERS bondholders have already sued UBS for allegedly bad information that UBS gave them in getting them to buy the bonds.

Lawyers for UBS, the board, and the Retirees Committee successfully negotiated language for Swain to lift the stay. She indicated her willingness to sign the motion that the parties had negotiated. Swain told them to provide the language to her in an “informative motion.”

Finally, there were extensive arguments on Wednesday on ERS bondholders’ request for Swain to appoint a trustee to ERS. Swain said she would consider the arguments and issue a decision later.

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PROMESA Commonwealth of Puerto Rico Puerto Rico Public Buildings Authority Puerto Rico Employees Retirement System Puerto Rico Highway & Transportation Authority Government Development Bank for Puerto Rico Puerto Rico